Typologies for innovation - L2

Typologies for innovation - L2

1. Product VS Process

   • Degree of Innovation - Technical - incremental innovation; small improvements § printers: improved functions in follow-up model § cars: improved injection technology - significant product improvements; technology unchanged § printers: inkjet printer, black/white to color § cars: Golf IV to Golf V - radical innovation; new technology § printers: laser instead of inkjet § cars: fuel cell instead of combustion engine
   • Product innovation − to generate / increase sales − must be established on the market process innovation − to enable / improve production of goods or services − must be established inside the organization BUT: − often product and process innovation go hand in hand (e.g., production of “Smart” car) − distinction often difficult (e.g. in pharmaceutical industry; for services) − product innovation for supplier can be process innovation for buyer

2. Industry Evolution

   • Stylized Facts in Industry Dynamics - Persistent and significant diversity within and across industrial sectors in firm behaviour, organization and performance (i.e. cumulativeness in innovation, no convergence to a common rate of return) - High turbulence due to entry, exit, and changes in market share (even in industries characterized by high barriers to entry) - Stability of a skewed distribution of both firm and plant size in manufacturing - Sectoral Specificities in Industry Dynamics (advertising, R&D and capital intensity as well as the industry growth rate play an important role)
   • Stylized Facts in Industry Dynamics Regularities in aggregate statistics describing industrial structures in terms of the patterns of innovative activity: - Schumpeter Mark I (Schumpeter 1912): § ease of entry § major role played by new firms in innovative activities § Continuous erosion of the competitive and technological advantages of established firms in the relevant industry - Schumpeter Mark II (Schumpeter 1942): § relevant barriers to entry § prevalence of large established firms in innovative activities § accumulation of technological capabilities over time

3. Radical Innovation

   • The S Curve Radical innovations can start a new “innovation cycle”: earlier competences and investments become (partly) obsolete.
   • Competition between „old“ and „radically new“ products may trigger a (terminal) high innovation rate in „old“ products.
   • The Ice Industry − 1806: first shippings of ice from New England to Caribbean − harvesting, storage, transportation perfected − 1833: “Ice ship” with 200 t of ice travels to India (180 days) − 1860: Tudor ships > 150,000 t ice per year by sea − 1860: ca. 30 companies producing “artificial ice” in USA − 1920: ca. 5000 ice producers in USA − after 1920: refrigerator replaces ice box
   • Radical innovation often causes problems for established players − Observation 1: Radical innovations often come from entrants, not from incumbents. − Observation 2: Incumbents often adopt a radically new technology very late (or even too late).
   • Market Aspects − Puzzle: Sometimes, established firms survive radical innovation very well. Why? èAbernathy / Clark: market linkages matter èTo better explain (and predict!) innovation success and failure of certain types of players, they distinguish innovations that § preserve market linkages § disrupt market linkages

4. An alternative explanation

   • Population Ecology „As many more individuals of each species are born than can possibly survive; and as, consequently, there is a frequently recurring struggle for existence, it follows that any being, if it vary however slightly in any manner profitable to itself, under the complex and sometimes varying conditions of life, will have a better chance of surviving, and thus be naturally selected.“ (Darwin )
   • Population Ecology Ecological theory explains the long-term evolution of organizational populations by resorting to two simple but precisely defined sociological forces: Social legitimation and diffuse competition Basic idea that can lead to the empirical pattern found in the evolution of industries: Density Dependence (Hannan 1986; Hannan/Carroll 1992) - Early industries when the number of organizations is low lack legitimation - Adding organizations leads to more legitimation but at a decreasing rate - Legitimation fosters foundings and survival - Diffuse competition rises with the number of organizations at an increasing rate - Competition suppresses foundings and survival Additionally: Density Delay (Carroll/Hannan 1989) - Organizations founded during times of high density face a higher mortality due to the competitive effect at the time of founding